CapitaLand 3.0 – Asia Largest ( Rights or No Rights ?)

image credit to edgeprop.sg

Guess this is the hottest business news headlines since the announcement made last week :

CapitaLand buying Temasek unit Ascendas-Singbridge in $11b deal

While everyone seems excited about how it will transform CapitaLand -> CapitaLand 3.0 to be one of the Asia largest real estate group and world No.9 in term of AUM, with 8 listed REITs entity on SGX.

I am more interested in below slide which shows the “deleverage plan” of how they are going to reduce the net debt/ equity ratio from 0.72x (post-transaction) to 0.64x by Dec 2020.

Well, it means that the chances of divesting (some said “dumping”) part of these 3 Bil assets to those listed REITs entity has increased, and guess what, investors should expect more “rights issue” for those REITs which have higher “gearing” in case they are going to “ Hop –in Hokkien” or receive part of these “divesting assets “.

We all knew that investors really “hate” rights issue in whatever form or discounted price, from recent OUE-Com REIT, Kep-KBS REIT to Cromwell REIT, stocks price tumbled after the announcement of rights and all of them dropped below TERP before stabilizing. Also, recent price drops from FIRST REIT due to rumour of possible rights issue after changing of the Reit Manager is a nightmare and scary episode for some of the investors.

What is TERP ( Theoretical Ex-Right Price) ( from Investopedia.com)

It is highly debatable whether “rights issues “ from REITs are good or not, but one thing for sure is the share price will be beaten down “irrationally “ unexpectedly low in some cases.

For retirees who are purely depending on dividend as sole income source, it might not be good as he/she need to fork out more cash to buy the right ( alternatively, may sell his rights after ex if it’s “renounceable “) , but as investors who have a more diversified source of income and war-chest ready, it might be a good opportunity to accumulate at a certain stage after the rights announcement.

My blog about “ Renounceable vs Non-Renounceable Rights Issue” (here ).

Is the REIT Myth Busted? ( from www.propwise.sg)

Above article will give you a more balanced and holistic view about rights issue from REITs and since REITs ( which inherit some form of growth factor ) is not like Bonds, one will need to expect rights call from time to time. Since my portfolio still having 45% in REITs, guess no other options that  I would have to get ready with my war-chest to play with this game of “rights “ right, treating “Rights issue” as part and parcel of investing in REITs.

If you are not ready for any rights issues for REITs, guess you still have the option of going for REIT ETF which will still give you a decent return (yield) after fees.

Cheers!

Further reading REIT ETF:

The Best of Both Worlds: REIT + ETF = REIT ETF

Singapore Budget 2018: Reit ETFs to enjoy tax transparency

Quote Of The Day:

“Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.” 
― Warren Buffett